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Distant Networking: The Knowledge
Acquisition Strategies of ‘Out-cluster’
Biotechnology Firms
MARGARIDA FONTES
Departamento de Modelac¸a
˜o e Simulac¸a
˜o de Processos, Instituto Nacional de Engenharia e Tecnologia
Industrial, Lisbon, Portugal
ABSTRACT This paper addresses the conditions that enable new biotechnology firms (NBF)
operating outside major biotechnology clusters, to obtain the resources and competences
necessary to emerge and grow. Drawing on in-depth research on the structure, rationale and
evolution of scientific and technological relationships of a group of Portuguese NBFs, the paper
discusses the knowledge sourcing strategies devised by these firms and the type of factors that
favour their adoption. NBFs are found to draw creatively from a diverse combination of local
and distant technological relationships and to profit from a number of mechanisms that can
reduce the impact of geographical distance on access to partners and on the transmission of
knowledge. This behaviour is favoured by factors associated with the strength of the local science
base in relevant fields and to the level of international mobility and exposure achieved by
local scientists.
Introduction
The biotechnology industry is characterized by a network structure of interorganizational
relationships that acts as a coordination device of a variety of actors—new biotechnology
firms (NBFs), large established firms, universities and other non-firm organizations—with
diverse competences and assets (Barbanti et al., 1999; Powell et al., 1996). Given this
specific form of industrial organization, the spatial concentration of innovative activities
was found to be particularly important for biotechnology development (Orsenigo, 2001).
However, there is evidence that biotechnology firms are also more likely to establish
connections outside the regional environment, given the global nature of their markets
and the diversified and fast changing nature of the science base needed to innovate
(Owen-Smith et al., 2002). Thus, the success of NBFs, which perform an intermediate
function between science and the market (Orsenigo, 1989), will depend on their ability
to put together a coherent set of relationships, both close-by and distant, that enable
Correspondence Address: Margarida Fontes, Instituto Nacional de Engenharia e Tecnologia Industrial, Departa-
mento de Modelac¸a
˜o e Simulac¸a
˜o de Processos, Estrada do Pac¸o do Lumiar, 22, 1649-038 Lisbon, Portugal.
Email: margarida.fontes@ineti.pt
ISSN 0965-4313 print=ISSN 1469-5944 online=05=060899– 22 #2005 Taylor & Francis Group Ltd
DOI: 10.1080=09654310500188498
European Planning Studies Vol. 13, No. 6, September 2005
access to new scientific knowledge and the establishment of effective channels to technol-
ogy or product markets.
Against this background it is possible to question: how do firms operating outside
biotechnology clusters manage to survive and develop? Research on the behaviour of
high-technology firms in regions where knowledge accumulation is lower, points to a
stronger reliance on distant relationships (Echeverri-Carroll & Brennan, 1999), through
which firms look for resources and competencies they cannot find locally. However,
there has been little attempt to go beyond the identification of this particular knowledge
sourcing strategy and to understand its origin and the implications of its adoption.
The objective of this paper is exactly to address this question, in what concerns firms’
access to scientific and technological knowledge. At a theoretical level the paper dis-
cusses the relative role of proximity in knowledge creation and transmission in biotech-
nology and the conditions that may contribute to reduce the eventual disadvantages of
distance. At an empirical level the paper presents the results of in-depth research con-
ducted on the strategies and practices of a group of Portuguese NBFs. Starting from
the assumption that scientific and technological relationships are critical for NBF devel-
opment, the research assessed the relative role of local/national and foreign sources of
knowledge, uncovered the motives behind a strong reliance on foreign sources and
attempted to understand the conditions in which firms establish and manage distant tech-
nological relationships and the impacts of this strategic option on firms’ behaviour. On the
basis of the evidence obtained—regarding the critical role of distant relationships for
these NBFs and the strategies devised by them to compensate for the relative disadvan-
tage of their location in terms of knowledge access—the paper discusses the viability
of a ‘distant networking’ strategy for NBFs located outside main concentrations of bio-
technology knowledge and presents a number of factors that are found to favour this
type of strategy.
Networks, Proximity and Distance in Biotechnology
Clustering and Reaching out in Biotechnology
Evidence on the US and Europe shows that biotechnology firms appear to benefit from
locating in strong regional clusters and simultaneously from being positioned in transre-
gional networks that enable them to be connected with a greater variety of organizations
and to access a wider range of competences and resources (Cooke, 2001; Owen-Smith
et al., 2002). In fact, biotechnology shows a strong tendency towards clustering, which
is associated with three types of factors: the quality, variety and level of integration of
the science base; the absorptive capacity of the industrial base; the presence of supporting
institutions, namely financial and labour markets (Allansdottir et al., 2002). But there is
also a parallel tendency of existing clusters to open up and establish a variety of external
connections, which is likely to be associated with the need to access leading edge research
in order to strengthen/renew the local knowledge bases (Owen-Smith & Powell, 2002).
The position of new biotechnology firms in the ‘division of labour’ characteristic of the
biotechnology industry (Arora & Gambardella, 1994; Orsenigo et al., 2001) makes them
particularly dependent on the efficient operation of the industry’s networking structure.
In fact, to perform their main role—conduct a transformation process that enables the
mobilization and productive use of knowledge generated in research organizations
900 M. Fontes
(Fontes, 2005)—NBFs will need: (i) to gain access to and identify application opportu-
nities for new knowledge and generally to consolidate and renew their knowledge base,
which requires good connections with research organizations (Orsenigo, 1989); (ii) to
complement their sometimes very specialized knowledge base, which may require close
interaction with large firms, with greater integrative capacities (McKelvey & Orsenigo,
2001); (iii) to gain access to markets for technology and/or downstream competences
related with regulation, production and commercialization, which they often lack and
which lie with large established firms (Arora et al., 2001).
Thus NBFs operate in the centre of a network and their success depends on their ability
to establish relationships with a variety of actors (Baum et al., 2000; Liebeskind et al.,
1996; Orsenigo et al., 2001; Pisano, 1991). Given their size and limited resources, they
are likely to benefit from being located in a biotechnology cluster, where such relation-
ships are easier to establish and manage (Stuart & Sorenson, 2003). However, the relative
importance of the cluster is not the same for all companies, activities and partners. Highly
innovative and specialized firms developing unique technologies and products are less
dependent on the local environment than service firms or suppliers of intermediate pro-
ducts (Mangematin et al., 2002) and co-location appears to be relatively more frequent
in relationships with research organizations than with other firms (McKelvey et al.,
2003). Local relationships tend to be more important in early stages, becoming less rel-
evant along firms’ life cycle (Lemarie
´et al., 2001). Particularly, scientific entrepreneurs
tend to locate the firm in the vicinity of their source organization and draw on advantages
from such proximity (Stuart & Sorenson, 2003; Zucker et al., 1998). But even in early
stages, the relevance of local links also depends on the seniority of entrepreneurs
(Mangematin et al., 2002) and on the type of assets firms wish to obtain: key knowledge
versus credibility or occasional assistance (Audretsch & Stephan, 1996).
Understanding the Conditions for Operating ‘Out-cluster’ in Biotechnology
Whereas most of the on-going debates focus on the conditions for development of
biotechnology clusters and on their presence or absence in a given context (Cooke,
2001; Orsenigo, 2001) the objective of this paper is, instead, to understand which type
of conditions enable firms located outside major biotechnology knowledge and business
agglomerations to be formed and grow and how do these firms compensate for the
absence of the conditions offered by more munificent environments.
The behaviour of technology intensive companies in peripheral areas
Research on the behaviour of high-technology firms located in regions where knowledge
accumulation is lower, although relatively scarce, provides some empirical evidence
towards the relative importance of proximity. In fact, several authors have pointed out
that these firms will tend to reach out for knowledge and competencies they cannot find
locally and therefore will tend to connect with organizations located elsewhere, relying
more frequently on distant relationships (Cooke, 2001; Echeverri-Carroll & Brennan,
1999; Felsenstein, 2001; Rees, 2001; Saxenian & Hsu, 2001).
However, although presenting evidence towards firms’ capacity to source knowledge
where it is available, these authors do not show how firms effectively pursue this endea-
vour. More specifically, because their focus often is on challenging the relative importance
of proximity, they do not try to understand whether and to what extent the need to establish
Distant Networking 901
and manage distant relationships presents specific requirements and problems. Or, the fact
that firms are created, survive and grow in less munificent environments, does not mean
that they would not benefit from more favourable conditions. It means that these firms
devised strategies that enable them to overcome the relative disadvantages derived from
their location. The objective in this study will exactly be to understand the nature of
these strategies and the type of factors that may favour them.
Biotechnology is likely to be one field where this type of behaviour may emerge
because some features of biotechnology, related to the characteristics of knowledge pro-
duction and use in this field, may facilitate the development of distant strategies. Evidence
that biotechnology firms, even when located in clusters, are often inclined to establish con-
nections outside the regional environment, given the global nature of technology markets
and of scientific production in the field (Dahlander & McKelvey, 2003; Owen-Smith
& Powell, 2002; Wolter, 2003), provides an argument towards the viability of these
strategies. Therefore the study begins by addressing biotechnology features which may
favour strategies that do not rely extensively on geographical proximity.
Access to and transmission of knowledge at a distance in biotechnology
One major argument concerning the importance of locating in a region where knowledge
accumulation is higher, regards the transmission of tacit knowledge, that would be
favoured by geographical proximity (Feldman, 1999), as opposed to codified knowledge,
that could be transmitted at greater distances. Biotechnology relies extensively on scien-
tific knowledge which is, in principle, more abstract and codified and thus more easily
transmitted at a distance (Arora & Gambardella, 1994), especially when access to
distant information has become easier and affordable (Amin & Cohendet, 2003).
However tacit knowledge still plays a very important role in biotechnology, especially
in early stages. This apparent contradiction is related to the fact that new scientific discov-
eries can be characterized by high degrees of ‘natural excludability’ (Zucker et al., 1998),
which means that only those who were involved in the development of the technology, or
have direct access to the research team who did it, will possess the know-how necessary to
replicate the knowledge. People who had such a common experience may have developed
shared meanings, a shared language and communication codes—i.e. epistemic proximity
(Steinmueller, 2000). This creates conditions for the knowledge produced to be at least
partly articulated and transmitted at a distance between members of the same ‘epistemic
community’ (Breschi & Lissoni, 2001).
Co-location is necessary for co-development and creation of epistemic proximity. But,
while exploration activities (production of new knowledge) will require a more permanent
co-location, exploitation activities (e.g. absorption and re-contextualization of the knowl-
edge produced) only require temporary co-location (Gallaud & Torre, 2001). Also, co-
location of people is not necessarily synonymous with co-location of firms, although
small firms and start-ups may find the latter more favourable. Other forms of co-location,
like post-graduate studies or periodical stays in a research lab may create the conditions for
common experiences, even if the actor originates from a distant region (Amin & Cohendet,
2003). Additionally virtual communication means can be instrumental to facilitate the
working of scientific communities (Davidson & Lamb, 2000; Sapsed et al., 2005)
and namely to assist members in less central positions to establish and maintain collabor-
ation (Walsh & Bayma, 1996).
902 M. Fontes
There are nevertheless some non-reproducible advantages of locating in environments
where research is world class. Embeddedness in local social networks facilitates access to
information on ‘who knows what’ and ‘who does what’, which can trigger early contacts
(Breschi & Lissoni, 2001), being particularly important when the new knowledge being
searched is not publicly available (Arundel & Geuna, 2001). Remarkably, integration in
local networks (especially at science level) can also be a gateway to international net-
works, when local scientists are themselves internationalized and belong to wider scien-
tific communities (McKelvey et al., 2003). Finally, some authors argue that the proximity
achieved by belonging at a distance to a ‘community’ has limitations, because virtual
communications do not “offer the same scope for reciprocity, serendipity and trust that
is afforded by sustained face-to-face contact” (Morgan, 2004, p. 12; Roberts, 2000).
Reaching out and the nature of distant search
Given the importance of scientific advances in biotechnology and the international nature
of knowledge production, search for knowledge outside the regional environment can be
a requirement, even for firms located in major biotechnology clusters (Owen-Smith &
Powell, 2002). However, it can be argued that, while the latter will more frequently
look for non-redundant knowledge that enables them to renovate or reconfigure their
knowledge base and to avoid the risk of excessive in-breeding (Bathelt et al., 2002; Rosen-
kopf & Almeida, 2003), firms located outside main knowledge concentrations will first of
all look for knowledge that enables them to develop and exploit their existing knowledge
base and only later will they eventually start looking for the other type of inputs. For this
reason, at least in early stages, ‘out-cluster’ firms are likely to search for knowledge that is
not too far from their current knowledge base. Their search will therefore rely on techno-
logical proximity, at geographical distance. Given the path dependent nature of innovation
(Nelson & Winter, 1982), it will be relatively easier for firms to rely on their existing
knowledge base to conduct new searches and also to understand and absorb knowledge
that is closer to it (Cohen & Levinthal, 1990). Later, firms may reach a point when they
also need to look for substantially new knowledge, thus facing both technological and geo-
graphical distance (Rosenkopf & Almeida, 2003). At this stage, their previous experience
in managing geographically distant relationships can be an asset.
However, distant search presents some particular features. It is conducted through
‘pipelines’ (Bathelt et al., 2002; Owen-Smith & Powell, 2002), an expression that illus-
trates its more purposive and focused nature: it does not come by occasionally or
without costs, rather is the result of a conscious effort to identify and gain access to a par-
ticular type of partner. More importantly, usually trust does not exist at the outset and has
to be built. This can be a slow process, with firms tending to apply staged procedures,
where levels of risk and commitment from the partners increase through time (Lorenz,
1999). Because these relationships take more time and effort to establish and maintain,
there are tighter limits upon the number of linkages firms are able to manage (Dahlander
& McKelvey, 2003).
The earlier discussion enables the confirmation that some features of biotechnology
may favour the development of knowledge acquisition strategies that do not rely strongly
on the advantages of geographical proximity. While access to technological knowledge is
critical and the transmission of knowledge (particularly tacit or ‘excludable’ knowledge)
at a distance can be complex, these difficulties can be circumvented or lessened, in some
conditions. For instance new knowledge can be more easily transmitted at a distance
Distant Networking 903
between actors that were involved in processes of co-production, which enables epistemic
proximity. While the latter may require instances of co-location, it does not necessarily
need co-location of firms and, therefore, entrepreneurs and their firms may profit from
alternative forms of co-location. Also, not all required knowledge will necessarily be fron-
tier knowledge (and thus ‘excludability’ will not always apply) and therefore a search for
relevant knowledge may be conducted through various sources, providing that it is not too
far from the firm’s existing knowledge base.
This suggests the possibility of defining a strategy that is based on extensive knowledge
sourcing outside the regional environment and that entails and sustains a precocious
internationalization. But it also suggests that the need to comply with different require-
ments and to adjust to a different structure of relationships, will lead firms to display be-
haviours that are more or less distinct from those of NBFs in more knowledge intensive
environments.
Empirical Research: Methodology
Research Methodology
In order to achieve an in-depth understanding of the strategies adopted by firms located
outside concentrations of knowledge and business in biotechnology, empirical research
has been conducted on a group of Portuguese NBFs. Given its location in the periphery
of Europe, Portugal is geographically distant from regions that have been identified as
the main biotechnology clusters (Allansdottir et al., 2002). The country cannot either be
described as having developed major concentrations of biotechnological knowledge,
despite a significant investment in the development of scientific capabilities throughout
the last decade, that enabled the creation of a reasonable science base in this domain,
with pockets of excellence in some fields (Fontes & Pa
´dua, 2002). Furthermore, these
efforts have not been matched by a parallel development of biotechnology-oriented activi-
ties at industrial level (Fontes & Novais, 1998). In the particular case of NBF creation,
recent research has shown that the Portuguese environment is not particularly favourable
to entrepreneurial initiatives in this field (Fontes, 2001). As a result, there are very few
biotechnology firms, most of them very recent: of the 33 companies currently in activity,
only 12 were created before 2000.
But despite the small numbers, there are a few older firms that achieved some success
and have reached a stage where it is possible to look back at their development process.
These were the firms chosen for this analysis: the four older surviving firms (created
between 1990 and 1996), to which were added two relatively younger firms (created in
1998 and 1999) with already some ‘history’, to give the counterpoint of firms going
through early stages in a more recent period.
All firms included in the analysis were the object, through time, of periodical follow-ups
of their activities (some since start-up), which gives a quasi-longitudinal view of their evol-
ution. Thus, the analysis combined previous accumulated knowledge about these compa-
nies, with data collection on their linkages and with in-depth interviews, conducted with
the purpose of obtaining detailed information about firms’/entrepreneurs’ technological
relationships (formal or informal). The research involved: mapping NBFs relationships
and assessing the importance attributed to and the roles performed by the different partners;
evaluating the relative importance of local/national versus transnational linkages;
904 M. Fontes
understanding the strategies underlying the choices made by firms regarding the structure
of their relationships and the motives behind the definition of these strategies; analysing the
process of establishing and managing distant relationships; considering the implications of
operating at a distance from relevant biotechnology centres, as perceived by the firms.
It should be noticed that when addressing the location of firms’ partners, the main
emphasis is put in the distinction national versus foreign which means that the country
as a whole has been associated to a ‘region’. This is because not only is Portugal a rela-
tively small country (defined as a region in European policies), which makes internal dis-
tances modest, but also, despite some regional diversity, the country boundaries configure
an essentially homogeneous space, regarding institutional and cultural frameworks.
General Characterization of the Firms Analysed
Table 1 gives an overview of the firms’ in case studies, showing date of creation, origin of
entrepreneurs, firm location and generic information about the business: target market,
type of activity and current market situation (regarding the main business). Firms were
at different stages of business development, which is obviously related with age. But it
is also influenced by the type of technology being developed and by the resources avail-
able, since these may have enabled a greater concentration on the core business or may
have forced an early dispersion other activities, delaying development. They operate in
a variety of application fields: pharmaceuticals, environment, marine products, food pro-
cessing, some targeting more than one field. As is the case with the vast majority of
Portuguese NBFs, all firms were direct or indirect spin-offs from research (Fontes,
2001), originating from a variety of universities and research centres, located in the two
main metropolitan areas (Lisbon and Porto). All except one were created by young scien-
tists, who had just finished (or were completing) their studies, or had obtained temporary
research jobs.
Research Objective
In a previous paper the author has presented and discussed in detail the structure, com-
position and evolution of firms’ formal and informal relationships—regarding both the
access to scientific and technological knowledge and to markets—and the motives under-
lying their establishment (Fontes, 2003).
The results of this early research confirmed that, for the firms studied, distant relation-
ships are a critical source of competencies and resources since start-up, with the relevance
of connections to (and sometimes full integration into) transnational networks, increasing
through time. In fact, it was concluded that, while firm formation decisions are associated
with the presence of local sources of scientific knowledge—with which close relationships
are established—firms will also develop, from inception, a set of transnational connec-
tions, which may assume a key role in their development process. However, it was also
concluded that while firms draw—at least in early stages—upon a diverse combination
of local and non-local sources to access scientific and technological knowledge, they
search almost exclusively abroad for markets and market-related relationships (for their
core business). Foreign sources of knowledge are accessed through entrepreneurs’
personal networks or through local research organizations, with industry-based channels
being practically absent, given the scarcity of large advanced companies with some
Distant Networking 905
Table 1. General characteristics of firms in case studies
AB CDEF
Year created 1990 1992 1994 (1999)
a
1996 1998 1999
Founders Senior researcher
& industry
Recent graduates &
young research fellows
Recent graduates &
Ph.D.s
Recent Ph.D. & young
research fellow
Recent graduates &
Ph.D.s
Recent Ph.D.s &
young research
fellows
Target market Agro-food Agro-food Agro-food Health Health Environment Health
Location Greater Porto Porto Greater Lisbon Greater Lisbon Porto Greater Lisbon
No. of employees
(2002)
14 12 14 25 5 5
Type of activity Product Services Product Contract R&D Technology
Services
Technology contract
R&D [Product]
Services [Product] Contract R&D
Market situation In market with
product
Entering market with
product
Entering market
with technology
In market with
technology
Developing product Entering market
with services
Develop product
a
Firm was created in 1994, but biotechnology activity only started formally in 1999.
906 M. Fontes
activity or interest in this field. Finally, it was also concluded that firms’ connections to
foreign sources expand and become increasingly important along the firms’ life cycle,
as they progress towards commercialization stages and/or need to broaden or renew
their knowledge base. In some cases firms will tend to increasingly disconnect from the
national environment.
In this paper focus is exclusively on relationships that are concerned with the access
to scientific and technological knowledge. Previous research is revisited and further devel-
oped with a view: (i) to evaluate the relative influence of local/national and foreign
sources on firm creation and early development, to uncover and explain the reasons
behind the early search for foreign sources and to understand the implications for firms
behaviour; (ii) to address in detail the process of establishment of distant technological
relationships; (iii) to identify conditions that favour the development of a strategy
relying extensively on distant networking.
In the previous section some features that may influence biotechnology firms’ ability to
operate at a distance from main centres of knowledge accumulation were discussed. The
empirical analysis is expected to provide some evidence towards firms’ behaviour at this
level, namely the strategies and mechanisms used by them to establish key technological
partnerships and the routes they devised to circumvent or manage the problems associated
with access to knowledge, enabling them to function at a distance in areas where geo-
graphical proximity is supposed to afford some advantage.
Strategies for External Knowledge Acquisition
As was pointed out earlier, previous research has shown that the most salient feature of the
external knowledge sourcing strategies of Portuguese NBFs is the fact that, although the
local/national context—namely some local research organization(s)—is relevant at start-
up, it will very early (often from inception) need to be more or less extensively comple-
mented by relationships with foreign organizations (Fontes, 2003). This early need to
access and integrate distant scientific networks, differentiates these firms from those
located in more knowledge intensive environments (McKelvey et al., 2003; Lemarie
´
et al., 2001).
In order to understand the reasons behind this behaviour and its wider implications for
firms operation, the structure of firms’ technological relationships and the rationale behind
their establishment are analysed. On the basis of this analysis, the relative influence of
local/national and foreign sources of knowledge on the firm creation process, as well
as on firms’ subsequent knowledge acquisition are discussed. Given the relevance of
foreign sources, the motives for and implications of their extensive use are looked into
in more detail.
Formal Technological Relationships—General Overview
Before proceeding to the in-depth analysis of the whole range of firms’ technological lin-
kages, it might be useful to provide a general overview of their formal relationships. Even
if these are only one element of firms’ knowledge sourcing activities, they offer a quanti-
tative illustration of the relative importance of foreign sources of knowledge.
Table 2 provides information on the technological relationships established by the firms
studied in the context of formal research projects or contracts. It shows that, with one
Distant Networking 907
exception, both foreign partners and the projects where these participate are more frequent
than exclusively national ones. Regarding the individual firms, it is possible to conclude
that neither the level of participation in external research projects, nor the relative import-
ance of foreign partnerships seem to depend on age. There are basically firms, of different
ages, that invest more in external research projects (B, C, F) and firms that invest less
(A, D, E).
Taken globally, the 35 projects identified involved 127 cases of one-to-one collabor-
ations with 96 different partners.
1
There were more collaborations with foreign organiz-
ations (63%), particularly from Europe (mainly UK, France and Germany) and there
was no predominance of collaborations with local organizations over national ones.
Collaborations with academic organizations prevailed over those with other firms, but
the main responsible for this result was the almost complete absence of firms among
Portuguese partners.
But while data on formal relationships can give an idea of the intensity of foreign con-
nections, it only tells part of the story. In fact, when inquired, firms would tend to select a
smaller sub-set, which they regarded as the key partners. These might have been around
for long periods, even if this was not reflected in the participation in repeated projects
and if some relationships were never formalized in projects or contracts.
2
Thus, a better
understanding of the nature of relationships requires the consideration of a more varied
set of contributions, as well as an in-depth analysis of the way they were obtained.
The Structure and Rationale of Technological Relationships
In order to understand the structure of firms’ technological relationships and the rationale
behind them, we have, first of all, analysed the sources that contributed to the formation
of the early knowledge base of the new firm, including the origin and background of
the entrepreneurs as well as the set of formal and informal linkages they established
during the launch process and in the early development stages. The main findings are dis-
cussed below.
It was found that co-location to one or a set of local research organizations (ROs) was
instrumental for start-up, although their contributions varied (Table 3). Globally, local
Table 2. Firms formal technological relationships: R&D projects/contracts
A B C D E F Total
No. of projects 5 13 5 5 2 5
a
35
Projects with
foreign partners
40.0% 61.5% 60.0% 60.0% 50.0% 100% 62.9%
No. of individual
partners
7 41 16 13 7 12 96
Foreign partners 14.3% 78.0% 68.8% 76.9% 71.4% 91.7% 72.9%
Year firm created 1990 1992 1994 (99) 1996 1998 1999
No. of projects/age
(no. of years)
0.4 1.3 1.6 0.8 0.5 1.6
No. of partners/age
(no. of years)
0.6 4.1 5.3 2.2 1.8 4.0
a
Founders worked as consultants in parent’s projects; one project started before the formal start-up.
908 M. Fontes
ROs could play one of the following roles: (a) knowledge originating from local ROs was
the basis for firm formation, whether the entrepreneurs had directly been responsible for its
production (as researchers or students), or had been later involved in the development
stages; (b) local ROs were the setting where the technology was developed, the entrepre-
neurs being afforded conditions to link to or integrate research teams, but development
was largely based on entrepreneurs own competences, obtained through their experience
abroad, as well on the linkages they established with foreign organizations. Whether or not
being a main source of knowledge, there was usually a local RO that assisted the entrepre-
neurs in their initiative, at least providing them with conditions to conduct their activities
(e.g. access to facilities and in-house competences, contacts, credibility towards funders
or research partners). Additionally, internationally well connected ROs afforded their
researchers or partners access to international networks.
The influence of knowledge originating from outside the national environment, took
place at two levels: (a) previous to firm creation, since in most firms at least one of the
founders had some international research experience, namely through Ph.D.s partly or
totally conducted abroad, or through previous participation in international projects as
researchers. This early experience exposed them to knowledge developed in foreign
centres of excellence, which they used more or less extensively in their subsequent entre-
preneurial activity. It also enabled them to establish valuable personal networks.
3
(b) At
early stages, through formal and informal relationships with foreign organizations (both
ROs and companies, with some predominance of the former), which they accessed
through personal networks, local ROs scientific networks or purposive non-mediated
search.
For a better comprehension of the contributions sought from foreign technological
relationships, which are synthesized in Table 4, it may be relevant discussing the
reasons why firms resorted to distant knowledge sources.
The need to search for foreign sources of knowledge is obvious for these firms that
found some support in local ROs, prepared to collaborate in their development efforts,
but providing a limited knowledge contribution. But it is less obvious for firms formed
on the basis of knowledge generated in first class local ROs. The explanation lies in the
nature of knowledge production in the Portuguese context. First of all, the best scientific
teams tend to be highly internationalized and hence, knowledge production in some fields
is likely to take place in extensive international networks, being distributed throughout
different research teams. Thus, to access scientific and technological knowledge and par-
ticularly to participate in its further development, it may not be enough to access the local
Table 3. Contributions from local/national ROs
ABCDE F
Technology transfer from local RO(s) as basis for firm
formation
pp p
Local RO was setting for technology development, but not the
main knowledge contributor
ppp
Local RO(s) assisted entrepreneurs at various levels: access to
facilities, research teams, sources of contacts and credibility
pppp
Well connected local RO(s) afforded access to international
networks
pp
Distant Networking 909
team; rather it may be necessary to integrate the network. Moreover, the small size of the
country inevitably forces teams to specialize in a limited set of issues and thus firms
working in more multidisciplinary fields, may still need to look elsewhere for comple-
mentary competences, even when finding a substantial part of the required knowledge
in local ROs.
A further reason lies in the need to access sources of more application-oriented knowl-
edge, which NBFs rarely find locally, due to the absence of firms prepared to engage in
technological or market-oriented relationships in the biotechnology field. The absence
of technology advanced firms interested in biotechnology, associated with the scarcity of
venture capital, also meant that firms confronted great difficulties to fund their develop-
ment processes (Fontes, 2001). In this context, foreign relationships were also regarded,
by all firms, as a means of gaining access to additional sources of research funding
(namely European funded research and technical development (R&TD) programmes)
that complemented the limited funding obtained from national programmes. They were
also used for monitoring new developments and for information exchange (both at the
technology and market level), which are vital in such an highly internationalized field
and, more generally, as a gateway to foreign markets.
The reasons described earlier can explain the rationale for engaging in foreign relation-
ships, at least during the early years. However, as Table 4 also shows clearly, not all firms
searched for the same level and type of contributions. Some firms used foreign relation-
ships as key sources of scientific and technological knowledge, without which their devel-
opment processes would not have been possible, while other firms used them, more or less
extensively, to complement local sources of knowledge. In the limit, for firms connected
to high quality local ROs, foreign relationships, usually accessed through the ‘parent’
network (at least in early stages), were simply an extension of the local ones.
The Roles of Local/National and Foreign Sources
One possible conclusion from the earlier discussion is that, while all firms analysed had
established, at very early stages, formal and informal relationships with foreign organiz-
ations, which were a key source of knowledge (and other resources), firms differed regard-
ing their need of foreign sources, the type of use they made of these sources and the
conditions in which they accessed them. One key differentiating factor was the relative
contribution of the local environment. Considering that other firms were virtually
absent, such contribution was determined by the strength of the local science base and
Table 4. Contributions from foreign technological relationships
ABCDE F
Sources of key S&T knowledge pp p
Complementary scientific knowledge ppp
Research partners for co-development processes ppp p
Application-oriented knowledge and partners pppp
Increased chances of research funding pppp
Wider opportunities for information exchange ppp p
Gateway to foreign markets pppp
910 M. Fontes
the presence of local ROs prepared to share their knowledge and scientific networks with
the NBFs. One further critical factor was the individual backgrounds and the quality of
entrepreneurs’ networks.
We are therefore confronted with a system that is relatively more complex than might
have seemed at the start. It is a fact that foreign technological relationships are critical
from start-up and often prevail (at least quantitatively) over the local ones, with entrepre-
neurs international exposure and experience being an important element behind firms’
knowledge access strategies. But it is also a fact that the relative contribution of local/
national networks—that is, the capacity of local organizations, research teams or individ-
ual scientists to set off or at least support entrepreneurial initiatives, both at initial stages
and through time—can make a difference for firms’ creation and further development.
The assessment of the relative importance and type of contributions of local versus
foreign (i.e. close versus distant) sources of knowledge, led to the definition of a
number of patterns regarding the process of firm creation and the conditions in which
firms operated subsequently in terms of external knowledge acquisition. The analysis
involved the evaluation of the role played by the local ROs—as shapers of entrepreneurs’
knowledge base, as direct sources of knowledge/technology (at start-up or later on as col-
laborators to firms), as sources of assistance at other levels, as gateways to scientific (inter-
national) networks—compared to the role played by entrepreneurs foreign backgrounds
and affiliations, as well as firms’ post-creation efforts in the search for foreign sources
of knowledge. Table 5 presents the three main patterns identified and puts forward
some implications for the firms’ positioning along them.
The decision to create a firm based on the presence of high quality, consolidated
research and the capacity to establish relationships with the local or national ROs
which produced it (Group 1), is an option that affords the firm access to knowledge pro-
duced both by the local teams and by the networks to which these belong. In this way, local
ROs are simultaneously sources of knowledge and gateways to a wider range of compe-
tences and potential partners. To some extent, firms created in this context would not differ
strongly from their counterparts in more munificent environments, if it was not for a more
precocious use of the potential for foreign expansion afforded by the ‘parent’ international
networks.
The decision to create a firm in a field where the science base is less strong, profiting
from—and willing to bring into the country—knowledge obtained in foreign centres of
excellence (Group 2 and 3) is less typical, although it corresponds to a certain ‘missionary
attitude’, already identified, for other fields, among Portuguese technological entrepre-
neurs (Fontes & Coombs, 2001). This option is a much more complex endeavour, requir-
ing a more extensive reliance on foreign sources of knowledge and entailing a greater
personal effort on the part of the entrepreneurs, in what concerns the identification and
access to potential partners and the firm’s credibilization before them. This effort will
be partly sustained by the entrepreneurs’ personal networks—thus strong international
backgrounds are obviously an advantage—but it usually results in slower knowledge
acquisition processes. Along these processes, firms’ ability to involve local ROs in the
concomitant development of capabilities in relevant areas (Group 2) could make a differ-
ence: besides providing additional support to the firms’ activities, these ROs could also
contribute to knowledge accumulation in the field, generating new opportunities to be
exploited by this or other new firms. In other cases (Group 3), this type of involvement
did not occur: early RO support did not proceed in this direction and firms were left
Distant Networking 911
mostly alone in their knowledge development efforts, being forced to turn decisively to
foreign sources and rely almost exclusively on distant relationships.
The Establishment of Distant Technological Relationships
Having analysed the reasons behind knowledge acquisition strategies relying extensively
on geographically distant technological relationships, the strategies and mechanisms used
by firms to identify and access foreign technological partners and to establish and manage
these relationships will now be addressed. This an important issue, because, as discussed
in an earlier section, such processes are far from being straightforward and may be particu-
larly complex for young small firms with limited resources and little reputation, even
assuming the existence of previous foreign experiences. However, despite of that, how
firms establish technological relationships at a distance remains an under-explored field.
The Role of Mediators
The analysis has shown that the process leading to the establishment of foreign relation-
ships was often based on previous contacts, or at least mediated through them. Two types
Table 5. Patterns: relative contribution of local/foreign sources and its implications
Patterns Firms
Supported by strong
local science base
Group 1—Local research is strong, local ROs are well
connected internationally, with knowledge
production being distributed in international
networks.
Parent ROs is a sustained source of knowledge and
foreign links a natural extension of local ones. The
latter are often formed in the context of parent
projects to further develop the technology and
basically involve its scientific networks and/or
personal networks built on its context.
C
F
Based on willingness
to explore less developed
fields (at country level)
Group 2—Local research is less strong and firms have
to identify and establish contacts with
complementary sources of knowledge abroad,
although retaining links with local ROs with whom
processes of joint-competence development are
conducted.
Search for foreign sources use, to some extent, links
to local ROs as source of contacts and credibility, but
still depend strongly on firms’ own search efforts,
being mostly based on entrepreneurs’ personal
networks or unsupported.
B
E
Group 3—Local research is limited and firms have to
look for missing sources of knowledge elsewhere
and end up having most or all of their key partners
abroad (even when local links had some relevance in
early stages).
Search for foreign sources is mostly based on
personal networks or unsupported.
A
D
912 M. Fontes
of mediation processes are observed: direct mediation, that involved effective access to
and integration into existing scientific teams or even wider international scientific commu-
nities; and indirect mediation, where some assistance was provided in the identification
and access to relevant partners, with the mediators acting basically as facilitators, but
with the essential of the effort being based on firms’ own search activities.
One form of direct mediation was established by well connected local ROs, which
afforded their researchers and students opportunities to participate in co-production of
knowledge in international teams and/or afforded their spin-offs, or associated NBFs,
access to their international scientific networks. This mediation eased admission into
research communities whose access might have been difficult for newcomers, enabling
participation in common research projects as well as less formal knowledge exchanges.
Other forms of direct mediation occurred when entrepreneurs, who had been previously
involved in co-production of knowledge in foreign organizations (e.g. as graduate students
or researchers), draw on the contacts thus obtained to renew the collaboration, in order to
give continuity to previous projects, or to build upon them to explore new opportunities.
In both cases the conditions required to enable transmission of knowledge, even in its
excludable forms are found.
Indirect mediation processes relied above all on entrepreneurs’ personal networks. Pre-
vious foreign experience was an important asset, providing a range of contacts that were
instrumental in the search efforts: e.g. with ex-supervisors, professors or colleagues from
graduate studies abroad, or ex-partners from previous research projects. These were
mostly facilitators, offering critical information on relevant research or potential partners,
providing access to their own scientific networks and/or acting as credibility enhancers.
Indirect mediation was equally afforded by less well connected local ROs, that still pro-
vided some contacts and institutional credibility and also by membership of professional
societies or by market partners. Finally, national or European brokerage organizations
were also a source of contacts to willing partners with matching requirements.
However, some firms still considered that at least part of their search efforts had gone
largely unsupported, suggesting that in some circumstances no mediators could be
mobilized to gain access to relevant partners. This was particularly the case in early
stages, since with time firms gained a reputation that made them more visible and/or
became more extensively connected, making at least indirect mediation more likely.
Indeed, for these firms, success in gaining the first important contacts could act as a
lever to subsequent search efforts.
Conducting Search with Limited or no Mediation
Indirectly mediated or unsupported search for knowledge was usually conducted towards
research organizations rather than firms. The cases analysed were characterized by staged
processes of mutual assessment and gradual involvement, as suggested by the literature on
establishment of distant technological relationships (Lorenz, 1999). These processes could
take the form of prolonged informal exchanges that enabled mutual awareness of skills and
motivations, leading to an eventual identification of joint interests. But they could also
take the form of a more stringent evaluation of firms’ capabilities. That is, competence
had to be proved—and sometimes improved—before the firm attained a full partner
status. In some cases firms effectively needed to develop additional competence in a
given field and therefore profited from these staged procedures to engage in purposeful
Distant Networking 913
learning processes (case of firms A, B, D). The resulting relationships progressed through
growing levels of co-involvement, as firms’ capabilities developed, and were character-
ized by frequent exchanges of people, which also contributed to the development of
mutual trust.
Although further research is needed for a better understanding of those non (directly)
mediated processes, the current understanding is that situations like the above were facili-
tated by the fact that these firms were operating in fields not very distant from the entre-
preneurs’ knowledge base and therefore, both their ability to demonstrate some previous
record or resort to credibility enhancers, and their absorptive capacity, were higher. Thus,
it is possible to speak of ‘technological proximity at geographical distance’. When firms
were able to engage local ROs in processes of co-development of competences, they also
had better chances to be successful in their knowledge absorption efforts. Moreover, it can
also be argued that, although those firms operated in new areas, the technologies being
developed did not necessarily involve frontier knowledge and therefore the concept of
natural excludability might not always apply. True new discoveries were more likely to
take place in the context of the international networks, where firms entered mediated by
reputed local scientists, already part of the ‘epistemic communities’. Non-mediated
search for knowledge that departed substantially from the firm knowledge base was less
frequent and tended to occur in later stages, when firms were attempting to enter new
lines of activity: only three older and more experienced firms mentioned it (firms A, C,
D) and for two of them it was only an exploratory search.
Finally, throughout all modes of establishing foreign relationships, the exchange of
people was regarded by firms as particularly important to gain access and to enact pro-
cesses of learning and/or of co-development of competences. It ranged from sending
staff for graduate training or for temporary stays in the context of formal projects or
less formal relationships, to encouragement of visits from foreign partners and informal
network members. This mechanism was also widely used by firms to provide international
exposure and training to their younger employees.
One possible conclusion from this discussion is that the conditions in which firms
accessed external sources of knowledge varied. It was shown that external mediation, par-
ticularly direct mediation into specific teams or communities, was a critical asset in the
formation of foreign technological relationships. The access to this form of mediation
would result either from close relationships with local top level, internationalized research
teams or from entrepreneurs’ previous experience in co-production of knowledge in
foreign centres of excellence. Therefore, it is possible to conclude that also in what con-
cerns the conditions in which firms accessed foreign sources, the strength of the local
science base and the international background of entrepreneurs were key elements.
However, the effective establishment of stable relationships and the capacity to fully
benefit from the opportunities they afforded, strongly depended on firms’ purposive
strategies and on their persistent efforts, sometimes during long periods of time.
Conditions that Facilitate Distant Networking Strategies
The evidence from previous sections sustains the identification of a number of factors that
can facilitate the establishment of relationships with foreign sources of knowledge and
enable firms to profit more effectively from them—i.e. favour distant networking strategies.
This includes factors external to the firm and sometimes previous to start-up—globally
914 M. Fontes
these are associated with the strength of the local science base and with the level of inter-
national exposure and mobility of human resources and organizations—and factors
internal to the firm and pertaining to the adequacy of strategies devised for this
purpose. These factors and their impact will be summarized briefly.
Factors External to the Firm
With respect to external factors, and considering that other technology intensive firms
were practically absent, the quality of the scientific and technological knowledge produced
by local ROs and their willingness to share it with the NBF, were the key element at
country level. Factors related to the strength of the local science base include:
(a) Presence of high quality research: It reduces the need for foreign sources, but also facili-
tates their search, by contributing to develop the firms’ early knowledge base (whose
quality is an asset in the establishment of new relationships). Since first class ROs
tend to be internationally connected, links with them also facilitate foreign searches.
(b) Local co-development of capabilities: When the local science base in a given field is
less strong, the engagement of local ROs in the development of capabilities in fields
where a firm has managed to establish relationships with foreign sources of knowl-
edge, can leverage its efforts. It may also create conditions for further knowledge
accumulation in the field, which will equally reinforce the firms’ position in the
search for new partners.
(c) Investment in the advanced training of human resources: Provides a stock of qualified
personnel, which is a key asset for firms’ development. When associated with
mobility mechanisms (both university – industry and international) offer additional
support to firms’ external knowledge acquisition efforts, which are strongly based
on exchange of people.
In an highly internationalized field such as biotechnology, factors related to the strength of
the local science base are closely associated with factors related to international mobility.
In the Portuguese case, a considerable government investment in internationalization of
research teams and advanced training abroad (Fontes & Novais, 1998) created conditions
for extensive exposure of individuals and organizations to more advanced contexts.
Factors related to international mobility and exposure include:
(a) Mediation through local networks: First class highly internationalized local research
teams can afford direct mediation into their transnational networks, easing the admis-
sion of their associated firms into relevant scientific communities.
(b) Organizational exposure: Internationalized local ROs provide their researchers or stu-
dents with opportunities to become involved in multi-country research teams and to
be part of co-development processes, creating conditions for an easier access to scien-
tists and organizations, if a business opportunity is identified by the researchers.
(c) International mobility and training programmes: Afford young scientists the oppor-
tunity to conduct graduate studies or temporary work in first class foreign ROs, expos-
ing them to knowledge production in a wider variety of fields and, sometimes,
enabling their direct participation in its development. It also confronts them with a
variety of cultural contexts.
Distant Networking 915
This type of factors are critical, because they act upon a number of basic constraints.
Globally, research and training abroad exposes scientists (particularly younger ones) to
knowledge being developed in centres of excellence, thus enabling new firms to move
beyond the local specialization constraints. It also enables the participation in processes
of knowledge production, or the direct collaboration with people involved in such pro-
cesses, who can act as mediators into relevant scientific communities. Thus it lessens
the difficulties associated with the transmission of knowledge, by creating instances of
temporary co-location and favouring the development of epistemic proximity. Finally,
the close contact with a variety of contexts, organizational models and cultures facilitates
cross-country exchanges and linkages and generally breeds a generation of more open-
minded scientists.
Factors Internal to the Firm
While external factors create conditions for and facilitate the establishment and manage-
ment of relationships, purposive firms’ strategies and practices are indispensable to make
these processes effective. Key elements of these strategies are:
(a) A consistent outward attitude, directed towards the creation of an extensive network
of contacts and the capacity to nurture these networks and gain the collaboration of
their members to support firms’ activity at various levels.
(b) Persistence in sustaining slow interaction processes and willingness to engage in long
credibilization and/or capability building processes.
(c) Strong investment in periodic instances of temporary co-location with distant partners
for co-production of knowledge and/or learning. Ideal, if complemented with the
capacity to enlist local ROs for processes of co-development of competences.
(d) Development of internal mechanisms to guarantee the coordination and integration of
contributions from a variety of knowledge sources and to enable their effective
absorption and transformation in firm specific capabilities.
A further key element in firms’ strategies is the capacity to maintain a mode of operation
based on frequent travel. In fact, it was concluded that while information and communi-
cation technology (ICT) means are important to identify and make first contact with part-
ners and to maintain already on-going relationships (including nurturing personal
networks), face-to-face contacts remain critical for the effective establishment of relation-
ships, especially when the process is not mediated. Periodical personal contacts are also
necessary in on-going partnerships, to guarantee coordination and/or project re-assess-
ment and to maintain the relationships in good shape.
4
Temporary co-location through
exchange of people between organizations is also essential for technology development,
while occasional co-location in international fora can generate a variety of contacts.
This requirement, that results in higher costs, both financial and personal, is perceived
by firms as a critical problem of distance.
The set of requirements described earlier confirms that operating at a distance from
main knowledge partners is far from being straightforward. It is likely to be more
complex to achieve and to manage (particularly at early stages), entail much greater finan-
cial and personal efforts than those required to similar firms located in clusters and demand
persistence and particularly good relational skills.
916 M. Fontes
Conclusions
The analysis of a group of biotechnology firms created in Portugal, has provided some evi-
dence towards the conditions in which these firms are formed and develop outside biotech-
nology clusters, in locations where knowledge accumulation is lower. It was argued that
while clustering is important for the evolution of this sector, biotechnology also presents
some features—namely the international nature of scientific production and markets—that
may facilitate firms’ development outside major concentrations of biotechnology knowl-
edge and business. But it was also pointed out that firms’ ability to survive and grow in
these environments cannot be regarded as evidence that location is indifferent (the
small number of firms that manage to materialize is evidence of the contrary), rather
shows that these firms have been able to devise strategies to overcome some of the relative
disadvantages of their location. An important element of these strategies is the capacity to
create and sustain connections with key actors and organizations located in more knowl-
edge intensive regions and to develop ‘alternative’ forms of proximity.
This paper addressed these strategies. Early research on the case of Portuguese NBFs
had provided evidence that distant relationships are critical to these firms since start-up
and that their relevance increase through time. In this paper, the process of establishment
of scientific and technological relationships and the motives for and implications of the
strategies adopted by these NBFs at this level have been addressed in greater detail.
The objective was to understand the conditions in which firms establish and manage
distant technological relationships and the factors that influence firms’ ability to
develop strategies that enable knowledge acquisition at a distance.
It was concluded that although all firms search abroad for knowledge and competences,
the relative need for resorting to foreign sources and the conditions in which they do it,
differ. Two main types of factors have been identified as influencing these variables.
The first one is the strength of the local science base in relevant fields, which can influence
firms’ behaviour at three levels. First of all, by impacting upon the balance between
national and foreign sources in firms’ knowledge acquisition strategies. But also by con-
tributing to the development of firms’ early knowledge base, impacting on their position-
ing towards foreign partners and, subsequently, on their capacity to enact learning
processes and more generally to absorb and use the new knowledge; and by mediating
(directly or indirectly) firms’ access to relevant international scientific networks, easing
the difficulties associated with admission to scientific communities and with the trans-
mission of knowledge at a distance. A further critical factor is the degree of international
mobility and of exposure to foreign contexts, whose impact can be observed at two levels.
First, by exposing (young) scientists to knowledge being developed in foreign centres of
excellence, it increases the variety of opportunities for exploration and it also enables
potential entrepreneurs’ participation in the co-production of knowledge conducted by
teams to whom they may subsequently turn for new collaborations or for mediation
purposes. Second, it provides a wealth of opportunities for building personal networks
at various levels, as well as experience with dealing with different cultures.
While these external factors create conditions for and/or facilitate the establishment
and management of foreign relationships, the effectiveness of these processes depends
strongly on firms’ purposive strategies and persistent efforts. Key elements of these strat-
egies include: an outward attitude directed towards the creation, nurturing and adequate
use of an extensive network of contacts; investment in instances of temporary co-location
Distant Networking 917
for knowledge production; persistence in sustaining slow interaction and credibilization
processes; capacity to enlist local ROs for co-development processes; development of
internal mechanisms to enable knowledge absorption and transformation. However,
operating at a distance from the main knowledge partners is far from being costless.
Despite the possibilities introduced by ICT, face-to-face contacts remain critical at
various levels and temporary co-location is a requirement. This makes constant travel
and periodic displacements the normal mode of operation for these NBFs, one that has
high costs, both financial and personal.
In conclusion, the case of Portuguese NBFs shows that ‘distant networking strategies’
are viable when the type of factors described earlier are at work and companies are able to
devise strategies that enable them to circumvent or compensate for the problems associ-
ated with knowledge access at a distance. These involve namely the capacity to create
and then benefit from what can be described as ‘alternative forms of proximity’: temporary
geographical proximity; epistemic proximity in new scientific fields; technological proxi-
mity in fields that are not at the knowledge frontier. But the implementation of these strat-
egies may entail much greater efforts and skills than these required by similar firms located
in more munificent environments, which may mean that only the best companies survive.
In all cases, chances of success are greater for firms that are able to involve local actors in
their efforts.
Notes
1. The number of collaborations is higher than the number of individual partners (96), which can be
explained by repeat collaborations with the same partner, more frequent in the case of Portuguese
partners.
2. A good example of the limitations of this analysis is the case of firm A: although in quantitative terms it
had more national projects and partners, the key source of knowledge and main partner was a foreign
organization.
3. The role of ‘transnational entrepreneurs’, who identify new opportunities and build economic and social
networks between their home country and the advanced countries where they spent some time working or
studying, was also documented by other researchers (Saxenian & Hsu, 2001; Reuber & Fischer, 1997).
4. This result is consistent with recent research on the functioning of distributed teams, that tipified the
activities amenable to virtual forms of communication and these requiring direct interaction, stressing
the need for face-to-face contacts for activities associated with gaining trust, generating commitment,
building social capital as well as in search for new ideas and project conceptualization (Sapsed et al.,
this issue; Orlikowski, 2000).
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